1. What is ROI in Real Estate?

ROI (Return on Investment) measures the profitability of a real estate investment by comparing the net income generated to the cost of the investment. It helps investors evaluate the efficiency of different investment opportunities.

2. How Does the Calculator Work?

The calculator uses the ROI formula:

Where:

• \( \text{Net Income} \) — Rental income minus all expenses (USD/year)
• \( \text{Investment Cost} \) — Total initial investment cost (USD)

Explanation: The equation calculates what percentage return you're earning on your invested capital each year.

3. Importance of ROI Calculation

Details: ROI helps investors compare different properties, assess investment performance, and make informed decisions about buying, holding, or selling properties.

4. Using the Calculator

Tips: Enter accurate rental income (gross annual), all expenses (taxes, maintenance, etc.), and total investment cost (purchase price + renovations). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's a good ROI for rental properties?
A: Typically 8-12% is considered good, but this varies by market and property type. Higher risk properties should have higher expected ROI.

Q2: Should I include mortgage payments in expenses?
A: Only include the interest portion of mortgage payments, not principal payments, as principal payments build equity.

Q3: How does ROI differ from cap rate?
A: Cap rate doesn't consider financing costs, while ROI does. ROI gives a more complete picture of your actual return.

Q4: What expenses should be included?
A: Include property taxes, insurance, maintenance, repairs, property management fees, vacancies, and utilities if paid by owner.

Q5: How can I improve my ROI?
A: Increase rental income (renovations), reduce expenses (better management), or negotiate a lower purchase price.